## The starting point
Sam earns 45,000 pounds in a job with PAYE, and rents out two flats. Rent brings in 28,800 pounds a year. Sam had been declaring rent minus the full mortgage payment, which is not how the rules work for residential letting, and had never claimed for the small things.
## What the figures looked like
- Rent received: 28,800 pounds - Mortgage interest: 7,200 pounds - Letting agent fees, insurance, safety certificates, repairs, service charges: 7,200 pounds - Salary: 45,000 pounds
Since April 2020, residential landlords cannot deduct mortgage interest from rental profit. Instead the interest gives a basic rate tax credit worth 20 percent of the interest. So the taxable rental profit is rent minus the allowable running costs, and the interest is dealt with afterwards.
Taxable rental profit: 28,800 minus 7,200 equals 21,600 pounds. With a 45,000 pound salary, that pushes Sam over 50,270 pounds, so part of the rent is taxed at 40 percent.
## The three moves
**1. Claim every allowable cost.** Landlord insurance, gas safety certificates, agent fees, service charges, ground rent, replacing a broken boiler, accountancy for the rental, and the mileage or actual cost of travel to the property. Sam had missed 1,100 pounds of these across the year. Improvements are not allowed as a running cost, they go against capital gains when the flat is sold, so keep those invoices separately.
**2. Use the mortgage interest credit properly.** The 7,200 pounds of interest goes in box 44 of the property pages, not against profit. It reduces the final tax by 1,440 pounds. Getting this wrong in either direction is one of the most common landlord errors.
**3. Pay 6,000 pounds into a pension.** Sam pays 4,800 pounds and the pension provider claims 1,200 pounds of basic rate relief. That extends the basic rate band, so 6,000 pounds of rental income that was taxed at 40 percent is taxed at 20 percent instead. That is 1,200 pounds of tax saved, and the money is still Sam's, sitting in a pension.
## The result
- Tax on rental income before: 7,384 pounds - After claiming the missed costs, applying the interest credit correctly and the pension contribution: 4,024 pounds - Saved: 3,360 pounds in one tax year, with 6,000 pounds moved into a pension rather than lost
## What Sam actually files
- SA100 Self Assessment return with the SA105 property pages - Rental income in box 20, allowable costs in boxes 24 to 29, residential finance costs in box 44 - Pension contributions in the tax reliefs section of the SA100 - Filed online by 31 January following the end of the tax year, with the balancing payment due the same day
## Keep this in mind
Keep every receipt for six years. Joint owners split income by their share of ownership, unless they are married or in a civil partnership and file a Form 17 with evidence of a different beneficial split. If total rent before costs is under 1,000 pounds, the property allowance is simpler than claiming costs at all.
Sources: GOV.UK Property Income Manual, GOV.UK guidance on tax relief for residential landlords, and the SA105 notes for the relevant tax year.